Retail traders are rarely able to beat the market. This is what market regulator, SEBI’s study released in July 2024 showed; 7 out of 10 individual intraday traders in the equity have incurred losses in FY2022-23 as per the study. A similar study undertaken for the futures and options segment showed that 89% of individual traders lost money in FY22. 

An updated version of this report released in September 2024, has found that 93% of over one crore individual futures and options traders incurred average losses of around Rs 2 lakh per trader (cost included) during the three years from FY22 to FY 24. 

Not just that, but the top 3.5% of loss makers or roughly four lakh traders had an average loss of about Rs 28 lakh per person and a mere one percent of them managed to earn profits higher than a lakh each. 

Let’s be clear that intraday trading in the cash market or F&O is not a loss-making proposition per se. The same study has found that proprietary traders and foreign portfolio investors have made tens of thousands of crores as profits from these segments in FY24 and it’s all come from the losses of retail investors. 

This is not unique to our domestic equity markets, recent study from JP Morgan has found that retail traders in the US are barely able to make one tenth the annual return of the S&P 500 index. Despite the overwhelming data, retail investors continue relentlessly chasing the evasive outcome of quick, out sized returns that they believe equity trading has to offer.

Chasing instant gratification

We live in a fast-paced world. Technology and innovation have ensured that everything is instant. Deliveries, data, online education, payment, search and opening a broking account all of this requires just a few minutes of our time. No wonder, we seek instant returns too.

Why can’t money multiply instantly? Afterall, we barely take seconds to spend it online?

Earning money, whether it’s income from your job or income from your investments, is rarely going to be a matter of instantaneous outcomes. 

There is some element of greed as the markets have been in a relentless up move till now and the fear of missing out drove many to jump in. Data shows that at the end of FY 20, there were a total of 4.09 crore demat accounts which by October 2024 have increased to 17.9 crore. An incredible four times plus increase in a matter of four and a half years. The Nifty 50 value is up nearly three times from around 8100 to 23500 in this period. 

The data is dizzyingly euphoric, but let’s not forget that of the roughly 80 lakh (FY 24) individual traders identified by SEBI in derivatives segment and roughly 69 lakh (FY 23) traders in intraday cash market, 90% are making losses; nine out of ten traders across segments in the equity markets are losing money. 

What you need to do as a trader is focus on proper education, research and skill building before jumping into trading. This is a key step which many new traders may be skipping. 

Willingness to take on more risk

Everything we do with our money is interconnected and in turn money is connected to how we are feeling too. If we earn more, get a bonus, we spend more. If we are happy, we spend more. If we want to show our appreciation, we spend more. 

Bottomline is that many of us find it easy to spend more and now it’s done with a simple tap of your index finger. Whoosh, money spent. 

People are buying gadgets, holidays, meals, vehicles and what not which cost more than what they earn in a month. This trend is visible in the growing rates of consumer loans, personal loans and credit card outstanding. 

At the same time thanks to the meteoric rise in easy access influencer stock trading gyan on You Tube, Instagram and Telegram, one feels like it’s easy to make some passive income. 

By the time you realise that it’s not so easy, your spending has crossed its limits and you feel that you must go on trying.  Now, the most likely way to fund your over spending and expensive aspirations is not going to be patient long-term investing, rather, you will continue to rely on trading but with more risk and leverage as those hold the potential for out sized returns. 

The urgency to make money from trading comes not just from a sense of trying to catch up with another fellow trader, but also because you want more money to spend or perhaps to pay off loans. 

Both the risk and reward are exciting; but done recklessly, the reward will be elusive. Spend time learning and understanding charts, technical and market volatility patterns. Begin your trades with small amounts rather than leverage and then build on this knowledge till you acquire the right skills. Only once you are confident of wins at least 70% of the time, should you start adding larger funds to trading.

Recalibrate the next steps

Trading is exciting, but risks have proven to be high for those without the support of deep pockets, access to hi speed algorithms and time to make the sharpest research-based choices. Your advantage in this space will lie in how experienced and skilled you are, build that first. 

For many others, investing is about patience and mostly managed funds. Focus on quality, low cost, consistency and proven track record to pick a good asset/fund manager and then stay invested for close to a decade. You also have the option to invest regularly and accumulate your savings as opposed to trading regularly and clocking your losses. 

Wealth creation is the goal but without the right approach, be it through trading or investing, it will remain very risky.